Copper mining stocks and ETFs are popular options for investors looking to board the copper train, with copper being one of the world’s most important commodities seeing soaring demand,
The global transition to electrification and a low-carbon future is driving copper demand. It is used extensively in electrical applications and power generation for renewable energy and electric vehicles.
Copper is also used in construction because it doesn’t burn, melt or release toxic fumes in the event of a fire. Its timeless, shiny finish also looks good.
Will there be a copper bull run?
Copper prices are projected to double in the coming decade as the clean energy transition mounts.
The theory copper bulls stand by is that copper supplies will soon run low.
Given that higher copper prices bring higher copper production, this could initiate a self-perpetuating cycle. A possible scenario sees a soaring copper price pushing up production, leading supplies to run low while demand strengthens.
Another scenario playing out is production reducing as metal grades decline. Indeed, BHP Group (NYSE: BHP) and Rio Tinto (NYSE: RIO) have already noted declines in 2021 production numbers.
Although price fluctuations can be expected, the result could be a baseline of higher copper prices and thus elevated prices for copper mining stocks.
While copper mining stocks initially dipped as COVID-19 caused demand to shrink in the first half of 2020, the copper price soon began to rally later that year. Strong demand from China, tight scrap markets, supply disruption and a return in investor positioning into material and commodity markets brought the copper price higher and copper mining stocks with it.
Between March 2020 and May 2021, the price of copper soared over 126%. It even topped $10,000 for the first time in a decade. Since then, it’s been subject to extreme volatility at a suppressed price point.
Top copper mining stocks to invest in
Hot copper mining stocks linked to the clean energy and the EV manufacturing boom include Freeport McMoRan (NYSE: FCX) and Teck Resources (NYSE: TECK).
Meanwhile, copper mining stocks that fared well during the copper price rise but have since declined include BHP Group, Southern Copper Corp (NYSE: SCCO), Ero Copper Corp (NYSE: ERO) and Rio Tinto.
Here are some copper mining stocks to consider investing in:
Freeport McMoRan (NYSE: FCX)
Freeport McMoRan mines for copper, gold and molybdenum throughout Indonesia, Arizona, Chile and Peru. This copper miner is the largest publicly traded copper producer in the world.
Freeport McMoRan is a fast-growing copper mining stock with impressive returns. In its Q3 2021 earnings report, net income soared 298% year-over-year, and revenues jumped 57.9%. This was another notable quarter after Q2 enjoyed revenue growth of 88.2% year-over-year.
Shareholders are hopeful its growing cash reserves will convert to dividends and stock buybacks down the road.
The company already pays a dividend yield of 0.7%, its price-to-earnings ratio (P/E) is 16 and price-to-sales (P/S) is 3. Return on equity (ROE) is projected to come in at 31% for 2021 and 29% for 2022.
Freeport’s Bagdad facility in Arizona has proven reserves and an established operation with community support. It is now looking to build a new concentrator in around five years.
At its Indonesian Operation, the Grasberg mine is its biggest source of copper and gold and is expected to produce around 1.55 billion pounds of copper annually. This is jointly owned by the Indonesian government, a 51% shareholder.
“there's just going to be a time when the world is going to be very short of copper.” – Richard Adkerson, Chairman and CEO, Freeport-McMoRan, Inc.
Teck Resources (NYSE: TECK)
Teck Resources is one of Canada’s leading mining companies. In addition to copper, its business units are focused on steelmaking coal, zinc, and energy.
The TECK share price is up over 67% in the past year valuing it north of $18bn. Its success during this time comes down to rising demand for its metals and their elevated prices. In Q3 2021, Teck reported revenues of CAD$3.9bn and gross profit of CAD$1.6bn. This was a 471% profit rise year-over-year. EPS drastically improved from $0.18 to $1.52.
The company pays a dividend yield of 0.5%, its price-to-earnings ratio (P/E) is 24 and price-to-sales ratio (P/S) is 2. Return on equity (ROE) is projected to come in at 13% for 2021 and 14% for 2022.
Analysts are bullish on TECK stock, with 78% of FactSet analysts rating TECK a buy, while the rest say hold.
As an aside, Teck Resources has appeared on the Forbes World's Best Employers List two years running.
Southern Copper Corp (NYSE: SCCO)
Southern Copper Corp produces and sells copper. It also uncovers molybdenum, zinc, and silver during exploration. SCCO operates several projects throughout Mexico and Peru and actively explores Chile, Argentina and Ecuador.
In Q3 2021, around 78.7% of company revenue came from the sale of copper. However, it is facing challenges in its South American jurisdictions. For instance, the Prime Minister in Peru plans to shut down mines without production extensions. This controversial move is posing a challenge to SCCO's operations there.
Southern Copper Corp pays a dividend yield of 4.7%, its price-to-earnings ratio (P/E) is 16.8, and price-to-sales ratio (P/S) is 5.1. Return on equity (ROE) was 22.4% in 2020, which is projected to grow to 40.5% in 2021 and 33% in 2022.
Ero Copper Corp (NYSE: ERO)
Ero Copper Corp is a copper exploration stock. It also produces and sells copper, gold, and silver products. The Canadian company was founded in 2016.
Ero Copper is on an ambitious growth trajectory focusing on creating long-term shareholder value.
The company claims its Boa Esperança Project is one of the lowest capital intensity copper development projects globally. And it provides an example of the type of high margin, low capital intensity projects Ero has in mind. This project doubled the life-of-mine copper production compared to a 2017 study while increasing annual production volumes and mine life.
During Q3 2021, it displayed solid operating performance helping drive adjusted EBITDA to $72.9m. It also reported record quarterly cash flows from operations of $150.7m. This included a $100m payment for NX Gold Stream, which it used to pay down debt. Ero finished the quarter in a net cash position of around $64m.
During the past four years, it has reduced operating costs, built one of the largest exploration programs in the world and increased its investments in modernizing and improving its processing operations.
Ero Copper does not pay a dividend. Its price-to-earnings ratio (P/E) is 5.6, and price-to-sales (P/S) is 2.8. Return on equity (ROE) was 25% in 2020.
64% of FactSet analysts currently rate Ero Copper a buy.
Rio Tinto (NYSE: RIO)
Rio Tinto mines for copper, diamonds, iron ore, and aluminum. It also produces titanium dioxide and iron ore pellets.
The Rio Tinto share price has fallen 4% in the past twelve months after enjoying a bull run in 2020/21. While Rio Tinto has been a popular copper mining stock, it's copper production for 2021 (494k tonnes) slipped 7% compared to 2020. This was due to lower recoveries and throughput at Escondida due to the prolonged impact of COVID-19, partly offset by higher recoveries and grades at Oyu Tolgoi in Mongolia and Kennecott in the US.
Meanwhile, mined copper in 2020 (527.9k tonnes) had already slipped 9% lower than 2019, primarily due to lower grades at Kennecott due to planned pit sequencing and lower grades and lower material moved at Escondida.
The company is also having issues with its lithium prospects. Rio has pushed back production at its Serbian lithium project as it faces delays in key approvals and protests over environmental concerns.
Rio Tinto pays a dividend yield of 11%, making it very attractive to long-term investors. Its price-to-earnings ratio (P/E) is 6, and price-to-sales (P/S) is 2. Return on equity (ROE) is projected to come in at 40% for 2021 and 25% for 2022.
The consensus of 21 FactSet analysts currently rates Rio Tinto a hold, with 38% saying buy.
Is there a Copper Mining ETF?
There are copper mining ETFs. COPX, CPER, and JJC are a few of them.
Global X Copper Miners ETF (NYSEARCA: COPX)
COPX is a US ETF tracking a market-cap-weighted index of global copper mining companies. The Global X Copper Miners ETF is the first ETF option for pure-play copper exposure in the equity space. As of January 2022, it has $1.82bn worth of Assets Under Management (AUM). Its trailing twelve-month distribution yield is 1.37%.
Although technically a global fund, it has a strong North American exposure. The fund ranks companies according to their average daily trading volume with respect to its exchange over three months. The highest-ranked funds are included in the index.
COPX holdings currently include:
First Quantum Minerals
Sumitomo Metal Mining
Lundin Mining Corp
Mitsubishi Materials Corp
United States Copper Index Fund (NYSEARCA: CPER)
The CPER ETF tracks a rules-based index of copper futures contracts on COMEX. Contracts are selected using optimized quant analysis on prices of eligible copper futures.
As of January 2022, CPER has $230m AUM.
The United States Copper Index Fund doesn’t hold individual copper mining stocks. It trades futures contracts based on the SummerHaven Copper Index (SCI). The SCI tracks the performance of a fully collateralized portfolio of COMEX copper futures.
The CPER ETF trades an average of 140k shares each day and charges a 0.80% management fee.
iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEARCA: JJC)
The JJC ETF tracks an index consisting of a single copper futures contract at a time. This marks it as a simple vanilla strategy rather than the more complex optimized strategy of the CPER ETF.
JJC’s methodology weights the contracts by liquidity (2/3) and US dollar-weighted production (1/3).
The iPath JJC ETF has $80m in AUM. It charges a 0.45% management fee and trades approximately 26k shares each day.
Risks to investing in copper
Copper demand is likely to remain in the spotlight as long as clean energy and electrification are the order of the day. Nevertheless, copper mining stocks come with associated risks, and many are highly speculative. Plus, the transition to green energy is a long-term play and not something that will make a significant difference overnight.
The biggest risk to copper mining stock investments is the copper price falling. Additional headwinds facing copper mining companies and stocks include the uncertainty of production growth, foreign currency exchange rates when operating in far-flung jurisdictions, conflict, environmental regulation, governmental sanctions, reputational harm, inadequate infrastructure and intense competition, among other factors.
What next for copper?
Bears and bulls remain at loggerheads. A strong dollar and rampant inflation could be bad for the copper price as the price of copper and the US dollar tend to have an inverse correlation. When the dollar price is high, demand for copper declines as foreigners don’t want to pay over the odds for each pound of copper.
However, currency market investors are becoming more bearish on the outlook for the US dollar as other economies look to strengthen ahead of the US. This could be bullish for the copper price.
Meanwhile, soaring energy prices could be bad news for the price of copper. That’s because when energy costs are too high to justify economic expansion, demand for raw materials declines.
The copper price also depends on inventories stored. The combined inventories of the LME, Comex, Shanghai and Bonded warehouses remain at relatively low levels.
All in all, the macro outlook for commodities is complex. Therefore, investors should carefully weigh the pros and cons before jumping in.